A Peek at the Fiscal Future: Apres Schaefer, Le Deluge

January 23, 1994|By BARRY RASCOVAR

Welcome to the post-recession economy of the 1990s. Governor Schaefer's $13.5 billion budget unveiled last week amply illustrates the perils and the limitations of running a government in an era of lowered revenue expectations but increased demands for services.

Gone are the big costly new programs, the broad program expansions, the ambitious reforms for schools and public colleges and other worthwhile service extensions. This is a bare-bones-plus budget in which most agencies are restricted to last year's budget allotment.

As for the $327 million in new money available (revenues are rising a bit as the economy starts to improve), it is gobbled up by entitlement programs, debt service, state-mandated programs, the first salary increase for state workers in 4 years and additional prisons. Whatever else is new in the budget will be paid for through a higher ''sin tax'' on cigarettes.

What you see in Annapolis is a mirror-image of the mess in Washington. Mandates and entitlements are killing state government.

Here's the way Maryland's state budget is parceled out:

* Aid to local governments (primarily for schools) accounts for 33 percent of expenses.

* Entitlement programs that guarantee people services eat up 19 percent of the budget.

* Other programs mandated by state or federal law consume 7 percent.

* Money to run state colleges, health programs, human resources, the prisons and juvenile services swallows up 33 percent.

That leaves a mere 8 percent for all other state government programs.

It is a system of budgeting money that is running perilously close to the edge. Gradually, state services will start to diminish both in quantity and in quality. The enormous appetite of entitlements and mandates will see to that.

At a briefing on the budget last week, budget secretary Charles L. Benton admitted that the current trend holds great dangers for the state. Fiscal experts call it a ''structural problem.'' That means the state's income won't pay for all its programs and services in the latter part of this decade.

Maryland's budgeting process worked fine in the 1980s, when a robust economy meant annual revenue increases of 8 to 10 percent (or more) each year. That paid for a lot of new programs that were written into law -- thus becoming mandates. It also allowed Maryland to pay for all the federal mandates flowing from Washington.

Not any longer. Though revenues are expected to rise 5 percent next fiscal year, aid to local schools is rising by 6 percent ($113 million); Medicaid is rising by 10 percent ($97 million), and the price of paying off the state debt is jumping 25 percent ($27 million). Big annual increases -- all unavoidable -- for prisons and juvenile delinquents just add to the crunch.

How bad is the problem? It's not so bad this year, but down the road a budget deficit emerges of enormous proportions. The next governor faces a cumulative, four-year deficit of $1.3 billion. The following two years, the deficit goes up another $1 billion.

During that six-year period, the increase in state aid for Medicaid amounts to $600 million; local aid (mainly for schools) jumps by $860 million.

Such increases are clearly unsustainable. They are bankrupting state government -- and not just in Maryland. These are built-in increases. The states are helpless to stem the tide.

What this means is that the next governor won't have money to throw around on new programs and innovations -- unless he or she has the courage to raise additional revenues through higher taxes or a progressive revamping of Maryland's entire tax system.

More likely, the next governor will be forced to do what the current governor has adamantly refused to do: dramatically downsize government. State government in Annapolis has grown beyond the means of taxpayers to support all the services offered. Nonessential services will have to be trimmed or abolished. More user fees are inevitable.

Something has to give -- but Mr. Schaefer is leaving it to his successor to get the job done.

Barry Rascovar is editorial-page director of The Sun. His column appears here each Sunday.

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